Tuesday, August 25, 2015

"Own Occupation" Clauses and Interpretation

I cover a broad range of (mostly) employment law topics on this blog - but I don't write many posts on long-term disability (LTD) insurance and benefits. Today, I'm sharing some research on "own occupation" clauses.

The gist of an "own occupation" (sometimes called "regular occupation") clause is that insureds must have an injury, illness, or disease that precludes them from working in their "own occupation" to receive benefits. This is often a point of contention between the insurer and the insured. The insured wants to argue for a very narrow definition of the occupation to be eligible for benefits ("I can't do my specific job, so I'm covered!"). Insurers often try to deny claims on the basis that the insured can still perform different jobs that fall under a giant umbrella of the same occupation ("Look at all of these other jobs you can do that are similar enough to be called the same occupation!").

So, what's the law? Here in the Third Circuit, the courts seem to have taken a fairly insured-friendly approach:

In Lasser v. Reliance Std. Life Ins. Co., 344 F.3d 381 (3d Cir. 2003), an insurer relied on a labor market survey to deny LTD benefits under a regular or own occupation clause. The insured was an orthopedic surgeon whose coronary artery disease rendered him unable to be “on call” or perform emergency surgeries. Although his job required these tasks, the insurer denied his claim by concluding that a generic orthopedic surgeon could practice in the field without being on call or performing emergency surgery. The Court rejected this interpretation. Instead of defining own occupation as “orthopedic surgeon” (as the insurer did), the Court defined the insured’s occupation as “an orthopedic surgeon responsible for emergency surgery and on-call duties in a relatively small practice group and within a reasonable travel distance from his home in New Jersey.” Do you see how narrowly they defined that?

The Court concluded that the insurer’s denial of benefits was “arbitrary and capricious” and the insured was entitled to judgment in his favor. Notably, the Court also recognized the “inherent conflict of interest” when the insurer acts as claims administrator. Thus, courts apply a “heightened” or stricter standard of review to benefits denials.

In Weiss v. Prudential Ins. Co. of Am., 497 F. Supp. 2d 606 (D.N.J. 2007), the district court ruled in favor of the insured, a teacher who fell and injured himself. The insurer denied his LTD benefits claim under a regular occupation clause that read:
Regular occupation means the occupation you are routinely performing when your disability occurs. Prudential will look at your occupation as it is normally performed instead of how the work tasks are performed for a specific employer or at a specific location.
The insurer argued that the insured’s occupation was just “teacher” and that he could work in his own occupation as a “light duty teacher.” The Court was not impressed:
Prudential never explained why it classified Weiss simply as a “teacher,” rather than the somewhat more specific title of “special education teacher,” or the even very specific “special education food services teacher” . . . . In sum, Prudential's decision to deny Weiss LTD benefits was arbitrary and capricious because that decision was based upon an unreasonable interpretation of the term “regular occupation.” In other words, had the Policy more clearly stated that those covered under the Policy were simply “teachers” rather than some more specifically defined teacher, then Prudential's decision that Weiss's injuries did not prevent him from performing the job of a light duty teacher would have been a reasonable decision. But given the more generalized definition in the Policy of the term “regular occupation,” Prudential's interpretation of that term cannot be characterized as reasonable under the heightened arbitrary and capricious review standard.
Obviously, individual cases will require fact-heavy analysis of the "occupation" in question and the specific language of the policy.